In a common securitization scheme, an issuer issues securities backed by the cash flow and other economic benefits generated by a pool of assets (usually loans or other debt instruments). Typically, the issuer is a special purpose entity or some other type of entity which is bankruptcy remote from the sponsor, or originator, of the securitization. The sponsor sells its interest in receivables to the issuer in exchange for a payment from the issuer. This allows the sponsor to make adjustments to its balance sheet, tranche the debt to reach different investment groups, or originate or service more receivables. After acquiring the sponsor's interest in receivables from the sponsor, the issuer issues securities backed by those same receivables.
Securitizations in the timber industry are known, but are rare. In such past timberland securitizations, the issued securities were backed by the sale of timber products from the timberlands. Some of these securitizations have not performed well. The securities in the past timberland securitizations were not highly rated by the rating agencies (i.e., never higher than an A rating). Accordingly, there exists a need for a timberlands securitization structure that allows the securities to be highly rated and that also provides other attractive features to potential investors.